Romania's central bank keeps monetary policy rate at 1.75%

Romania’s National Bank BNR’s Administration Board decided on January 7 to keep the monetary policy rate at 1.75%, but has reduced the minimum reserve requirements for foreign currency from 14% to 12%, thus allowing the local banks to withdraw some EUR 500 million worth of liquidities. BNR maintained the minimum reserve requirements for the local currency lei at 8%. The VAT cut on food from 24% to 9% has led to deflation starting June 2015. BNR’s Board motivated their decision not to reduce the monetary policy rate further saying that the inflationary pressures remained, despite the fact that Romania now has a deflation. In November 2015, the aggregate level of consumer prices dropped by 1.1% year-on-year, but this was largely due to the VAT rate cut from 24% to 9% for food, on June 1, 2015. The reduction of the general VAT rate from 24% to 20% starting January 1 will keep the deflation in the following months. However, once these effects disappear, Romania will return to inflation, according to BNR. The lending in lei has seen an accelerated growth, according to the central bank. In November last year, the lending in the national currency reached 50.9%, surpassing after more than a decade the lending in foreign currency. editor@romania-insider.com